What makes a foreign trust?

​​​​I have been researching into determining what is a foreign trust vs a pension from what I gather if you contribute more vs your employer it is considered a trust?

I had a foreign pension scheme that I was auto-enrolled in via my UK employer. I believe I had 1% come out my check to go my employer pension plan.

When discussing with my wife her understanding was that if I contributed more to the pension scheme outside of  the percentage that came out my (employer) pay check contributions this would make it a foreign trust?

A bit like contributing achunk to a 401k in addition to the % you have setup to deduct from your paycheck.

Would this be correct?

Upon review of my pension scheme online my total employer contributions are higher than my employee contributions , with that being said with this not be considered a trust and a 3250 is not required?

I guess from what I noted above it's not a trust then?, my employer matched my minimum % contributions and when I review my contributions vs my employer contributions their contribution was higher than mine.

There is an interesting article on the following site that says SIPPs are considered grantors trusts. It also says that funds inside are SIPP that would normally be treated as PFICs by the IRS are protected under the pension wrapper and not reportable as such.

https://www.greenbacktaxservices.com/blog/sipp-taxation-us-expat-uk/

Other SIPP Considerations for a US Expat in the UK
Most SIPPs are considered grantors trusts and require additional reporting. Review Forms 3520 and 3520a to determine whether or not the additional al reporting applies to you.

Finally, note that your trust may include Passive Foreign Investment Companies (PFICs), which typically require additional reporting. However, the Treasury Department issued regulations that exempt PFICs in your SIPP from these requirements, whether or not the account is under treaty protection.

https://britishexpats.com/forum/usa-57/pension-trust-923743/

https://britishexpats.com/forum/usa-57/pension-trust-923743/

Hi guya,


I asked on another forum that was not UK Yankee I am unsure why you are referencing the post. I apologise if I did anything wrong I am seeking advice/help on the issue.

So I guess I was panicking upon review it appears it is not a trust and just a foreign pension, apologies for asking for advice/help it can be a bit intimidating doing taxes when you are not as knowledgeable and don't anyone in the same situation to ask for guidance.

See these links:

https://thunfinancial.com/home/american-expat-financial-advice-research-articles/american-expat-pfic-uk-non-reporting-fund-investment-trap-article/

https://help.taxesforexpats.com/article/537-uk-isa-sipp-foreign-trusts-on-us-tax-return

Says this:

SIPP are not foreign trusts - beware of redundant forms
Because of the U.K.-U.S. treaty, SIPPs are considered IRS-qualified pension accounts. Therefore, there is no need to report them as foreign trusts. Income in SIPPs can be deferred just like income in a U.S. IRA accounts.

We are often asked this question (is my SIPP a foreign grantor trust), as other tax preparers (often in the U.K) are notorious for preparation of redundant forms to justify high fees they charge for US tax returns. Ironically, along with forms 3520-a they commonly file form 8833 explaining that US retirement plans are IRS-qualified, although it has been determined that this obvious fact does not need treaty-position disclosure.

See these links:

https://thunfinancial.com/home/american-expat-financial-advice-research-articles/american-expat-pfic-uk-non-reporting-fund-investment-trap-article/

https://help.taxesforexpats.com/article/537-uk-isa-sipp-foreign-trusts-on-us-tax-return

Says this:

SIPP are not foreign trusts - beware of redundant forms
Because of the U.K.-U.S. treaty, SIPPs are considered IRS-qualified pension accounts. Therefore, there is no need to report them as foreign trusts. Income in SIPPs can be deferred just like income in a U.S. IRA accounts.

We are often asked this question (is my SIPP a foreign grantor trust), as other tax preparers (often in the U.K) are notorious for preparation of redundant forms to justify high fees they charge for US tax returns. Ironically, along with forms 3520-a they commonly file form 8833 explaining that US retirement plans are IRS-qualified, although it has been determined that this obvious fact does not need treaty-position disclosure.

The treaty has NO bearing at all on foreign grantor trust reporting. This is a common misunderstanding. Most US persons with SIPPs would reduce risk by filing annual 3520s and 3520-A forms.  The US/UK tax treaty deliberately makes no reference to any such reporting. The US/Canada treaty is rather better in this respect than the current UK treaty. Hopefully a future UK treaty will eliminate such filing as was done for Canada; but the current treaty annoyingly does no such thing.

Does anyone remember this guy who actually went into the US Embassy in London and actually asked an IRS representative? he had discussions on here with Guy and others and decided to find out for himsef. Here's what he said:

<<I've just come back from the US Embassy where I met with a couple members of the IRS department there. I took with me some notes from this conversation, specifically the references to IRC section 402(b) and 409A, and questions about the UK/US tax treaty Article 18, and form 8833.

The basic gist of my meeting was: "stop worrying so much."

The IRS employees I spoke with (btw to my surprise they're a friendly, down-to-earth bunch!) told me that since I am taking part in a standard UK pension, which behaves like all regular UK pensions do, I do not need to worry about reporting my contributions, my employer's contributions, or any growth in the fund on my federal income tax return. It is only when I start taking distributions from the pension that I will start to pay tax on it, and at that point it will depend on which country I am resident.

I asked them what happens when I leave my employer and roll over the pension into a regular UK personal pension. So long as it's a direct rollover into a pension that behaves the same way, again I don't need to worry. They said that the idea of treating a personal pension as a foreign trust, and having to worry about foreign trust reporting, was a highly conservative stance to take ("paranoid" in fact was the word they used).

Another notable quote from them: "I have never known anyone to file a form 8833 for a UK pension." Form 8833 comes in to play if you are taking an abnormal position with regard to the tax treaty, and omitting a UK pension from your income is not an abnormal position.

Again, I was told that the only place I need to report my UK pension is on my FBAR, and form 8938, if applicable.>>

I've paid for advice from a US based tax attorney RE this and we don't file any trust or PFIC paperwork. Two other references from US based tax advisors indicate you don't need to file trust or PFIC paperwork. I had my returns checked by the IRS and no issues.

It's your choice - you can pay an expensive UK based firm to do it or not. I don't. I get my US taxes done by a US based firm. They prepare my taxes, FBAR, 8938, 2 5471s and accounts for 3 rental properties for less than $500 US.  Anyone need a referral PM me.

The treaty has NO bearing at all on foreign grantor trust reporting. This is a common misunderstanding. Most US persons with SIPPs would reduce risk by filing annual 3520s and 3520-A forms.  The US/UK tax treaty deliberately makes no reference to any such reporting. The US/Canada treaty is rather better in this respect than the current UK treaty. Hopefully a future UK treaty will eliminate such filing as was done for Canada; but the current treaty annoyingly does no such thing.

Hi Guya,

With regards to the treaty does it mention anything about auto-enrolled pension schemes? I notice that you mentioned the US/Canada has a better treaty in this respect, do you anticipate on when a future treaty would occur as it appears the last one was about 17 years ago?

I did have a question about a foreign-pension I hope you do not mind providing your thoughts on.

There are different types of pension plans. For example; Workplace Pensions, Personal Pensions, Stakeholder Pensions and auto enrolment schemes for example the National Employment Savings Trust (NEST) scheme.

My UK pension falls under the highlighted auto-enrolment pension scheme type, since these type of pension schemes are setup as trusts in the UK are they deemed a foreign trust for US tax purposes? I find this question is almost a grey area I have received some individuals stating yes and some stating no. I am just curious on what your stance is it appears this type of pension scheme was introduced in 2012.

I noticed on this site (https://www.irsmedic.com/blog/2015/03/foreign-retirement-plan-taxable.html) that it mentioned.

So if we don’t have a undefined benefit plan it must be a defined contribution plan. If so, the next question we ask is who funded most of it? The reason why is the IRS treats pension plans that are over 50% funded by the employee as foreign grantor trusts. The problem with this is that foreign grantor trusts can be very time consuming and expensive to properly report.

Overview of my UK pension plan

* Auto-enrolled pension scheme
*Defined Contribution Plan
*My employer contributions were higher than my employee contributions
*My contributions were deducted from my monthly pay before tax was calculated, which means I
automatically received full tax relief on my pension contributions

Would this type of pension scheme be considered a foreign trust? I am curious as this type of pension scheme was phased in the year 2012 so I feel there has not been a wealth of information surrounding it in relation to US taxes, I greatly appreciate your input.

I've paid for advice from a US based tax attorney RE this and we don't file any trust or PFIC paperwork. Two other references from US based tax advisors indicate you don't need to file trust or PFIC paperwork. I had my returns checked by the IRS and no issues.

It's your choice - you can pay an expensive UK based firm to do it or not. I don't. I get my US taxes done by a US based firm. They prepare my taxes, FBAR, 8938, 2 5471s and accounts for 3 rental properties for less than $500 US.  Anyone need a referral PM me.

Hi Art,

Thanks for the reply, I usually use turbotax though for what you are filing $500 seems like a fantastic price!

I made a previous reply to guya about my UK pension with updated details, even though the UK pension is setup as a trust as pretty much all occupational work pensions are would this not be considered the same type of "trust" that the IRS is referring to when they mention "Foreign trust" ?

Why don't you send an email enquiry to taxesForExpats and tell us the results here? Per the reference I quoted in an earlier message their opinion is you n't need to report pensions as trusts.

As I said, on the advice of an expensive US -based tax advisor I don't report my pension as a trust, nor do PFIC reporting. Now I have started taking an income from my UK pension I claim 25% tax free on each receipt (I didnt take a lump sum) and use that to offset the profit from the pension (I have a basis in the pension and nly pay tax on the profit - well it's a bit mroe complicated than that bt the accountant figures all that out).

let us know what you find out....

Most of what I found online seems to suggest that a standard UK occupational pension which is a defined contribution pension is treated exactly as that.

From others online and the IRS Medic site I learned that it would be considered a foreign grantor trust if your contributions exceeded that of your employer and would result in the additional 3520 reporting. (Correct me if I'm wrong)

At one point does one file an 8833 if there is a dormant pension does one need to file an 8833 or would you do this once you start receiving distributions from it?

"I've paid for advice from a US based tax attorney RE this and we don't file any trust or PFIC paperwork. Two other references from US based tax advisors indicate you don't need to file trust or PFIC paperwork. I had my returns checked by the IRS and no issues.

It's your choice - you can pay an expensive UK based firm to do it or not. I don't. I get my US taxes done by a US based firm. They prepare my taxes, FBAR, 8938, 2 5471s and accounts for 3 rental properties for less than $500 US.  Anyone need a referral PM me."

Hi Art,
Firstly, many thanks for taking the time and trouble to post on this topic. Your information has been very useful and reassuring. I can't work out how to send you a PM to request the referral for the US based firm who do your taxes so if you wouldn't mind sending this to me I'd be very grateful. Thanks!

I can't work out how to send you a PM to request the referral for the US based firm who do your taxes so if you wouldn't mind sending this to me I'd be very grateful. Thanks!

You'll need a few more posts under your belt in order to be able to use the messaging system. Not sure how many though.